EXCHANGE RATE POLICY EFFECTS ON PERFORMANCE OF THE MANUFACTURING SECTOR IN NIGERIA: 1975–2023

Abstract

This study examined the impact of exchange rate policies on Nigeria's manufacturing sector from 1975 to 2023. The study employed the ARDL estimation technique and discovered a negative association between exchange rate policy and Nigeria's manufacturing sector's performance. The short run beneficial impact was caused by the weakening of the naira as a result of recurring instability. The long-term beneficial impact was caused by the immediate and direct effects of currency rate movements as a result of inflows of crude oil revenue which constitute Nigeria's principal source of exports. This shows that the exchange rate plays a significant and negative role in the sector's growth. Exchange rate policies determine the types and intervention for access to foreign exchange which ultimately have impacts on Nigeria's manufacturing sector. Import and operational costs rise when the naira falls in value. Inflation's long-term impact is negligible, driven by supply chain dynamics, input costs, and consumer demand. Interest rates and the balance of payments have a long-term favourable but small effect. The manufacturing sector's performance is significantly influenced by the stability of exchange rate and its management policies. Following the findings, the paper recommends that the government should ensure that any exchange rate policy adopted benefits the industrial sector. Furthermore, the government should turn its focus and policy directions towards the development of the industrial sector, because this would draw the attention of international investors, increasing the influx of foreign currency into the economy and strengthening the local currency.